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Government report shows spending is little changed in February, inflation in check.


NEW YORK (CNNMoney.com) -- Personal income rose in February and a key measure of inflation held steady, according to a government report released Friday that was stronger than economists expected.

The Commerce Department said personal income increased 0.5% in February, beating the 0.3% increase expected by economists surveyed by Briefing.com. January's gain was 0.3%.

The report also found that spending by individuals in current dollars rose 0.4%, matching January's rate and economists' forecasts. In inflation-adjusted dollars, spending by individuals remained unchanged at 0.1%, also matching forecasts.

Excluding food and energy costs, consumer spending in January increased 2% over the same period last year, suggesting that inflation is increasing at a rate that the Federal Reserve is comfortable with.

"This is a fairly decent report," said Wachovia economist Adam York. "Inflation is back at the top of the Fed's comfort zone."

Wall Street closely monitors this number to determine whether the central bank will continue its rate-cutting campaign.

However, York added that consumer spending remains weak and that current data suggest it will remain so in the near term, possibly declining in the first quarter.

Personal savings, as a percentage of income, increased to 0.3% in February from 0.1% in January.

Consumer spending represents nearly two-thirds of economic activity in the United States and is closely watched by investors hoping to gauge the strength of the economy.